(Bloomberg) — U.S. inflation is likely to rise modestly in July, but not enough to deter the Federal Reserve from a widely expected interest-rate cut next month.
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The consumer price index on Wednesday is expected to rise 0.2% from June for both the headline number and the so-called core measure, which excludes food and energy. While both represent an acceleration from June, the annual measures are expected to continue to rise at some of the slowest pace seen since early 2021.
The recent easing of price pressures has boosted Fed officials’ confidence that they can begin to lower borrowing costs while refocusing their attention on the labor market, which is showing greater signs of slowing.
The July jobs report showed that U.S. employers cut back sharply on hiring and the unemployment rate rose for a fourth straight month, triggering a leading recession indicator and contributing to a sell-off in global stock markets.
If the CPI reading comes in as expected, it would suggest that inflation remains on a downward trend, and economists expect a slight rebound after June’s surprisingly low reading. They see the reversal largely coming from so-called core services excluding housing — a key category that policymakers watch. Some forecasters also warn of the risk of higher commodity prices amid rising shipping costs.
But the long-awaited slowdown in housing costs that began in June is expected to continue. This category accounts for about a third of the overall consumer price index and is a key factor in determining the direction of broader inflation.
The producer price index — due out a day before the CPI — will be scrutinized for categories that feed into the Fed’s preferred inflation gauge, the personal consumption expenditures price index.
What Bloomberg Economics says:
“July CPI is likely to be weak, with the year-over-year change in core CPI declining further. Markets may rally on this news, but we think the implications for the Fed’s preferred price measure — the core PCE deflator — will be more mixed when CPI data is considered alongside PPI.”
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Au, and Chris J. Collins, economists. For the full analysis, click here
Another report next week is expected to show a rebound in overall retail sales in July, but once some components are stripped out to arrive at the control group — which is used to calculate GDP — sales are expected to slow markedly.
Other data on the agenda include the latest readings on inflation expectations, small business sentiment, industrial production and new housing starts. Regional Fed presidents Raphael Bousik, Alberto Mussalem, Patrick Harker and Austan Goolsbee are scheduled to speak.
U.S. Federal Reserve Governor Michelle Bowman said on Saturday she still sees upside risks to inflation and continued strength in the labor market, suggesting she may not be ready to support a rate cut when U.S. central bankers meet in September.
Looking north, housing starts in July will reveal whether the Bank of Canada’s successive rate cuts are helping to spur investment in new construction. Canadian wholesale and manufacturing sales are expected to have fallen in June.
Elsewhere, key data highlights from the UK include wages to inflation, production and retail figures from China, and possible decisions to keep interest rates unchanged in Norway and New Zealand.
Click here to see what happened last week, and here’s our summary of what’s coming in the global economy.
Asia
Chinese data due out on Thursday is likely to show the economy performed slightly better in July than in June, but remains largely unchanged from growth.
Industrial output growth may accelerate to 5.5%, a pace still slow enough to lower the year-to-date tally slightly.
The same is true for retail sales, which are forecast to rise to 2.6% while the seven-month pace of growth is expected to slow to 3.5%. Fixed-asset investment is expected to remain flat, while the decline in real estate investment is expected to slow.
Credit growth in China is likely to slow in July, despite a key interest rate cut by the People’s Bank of China and a cut in key lending rates.
Elsewhere, Japan’s Q2 GDP is expected to rise to 2.3% year-on-year, while Taiwan and Kazakhstan will also get Q2 GDP figures.
Australia will release wage price figures, consumer confidence and the NAB business confidence survey, all on Tuesday.
India’s consumer inflation is expected to slow to below 4% in July, while industrial output growth may slow in June. Trade statistics from India and Indonesia are due.
Among central banks, the Reserve Bank of New Zealand is expected to keep its official cash rate at 5.5% when it meets on Wednesday, though a cut is not ruled out. Philippine central bankers meet a day later.
Europe, Middle East and Africa
The UK will be in the spotlight, with four days of releases that will give the Bank of England insight into the economy in the same month it cut interest rates first and signalled there is more to come.
Data on Tuesday, which is likely to show slowing wage growth, is likely to be among the most important, although inflation the following day will also be watched for evidence of continued pressures – especially the services gauge which could come as price growth remains stuck above 5%.
Monthly gross domestic product on Thursday is expected to show no growth in June, though second-quarter output due the same day could show a 0.6% expansion. Retail sales on Friday are likely to show an increase in July after falling the previous month.
Nordic countries are also likely to attract attention, especially Norway. The Norges Bank is expected to keep interest rates at 4.5% on Thursday, in line with the more aggressive stance it took in June, when officials effectively postponed monetary easing until 2025.
Core inflation has slowed faster this year than officials had expected, but the energy-rich economy has also coped better than expected with the highest credit costs since 2008; wage pressures remain high and the labor market has softened only slightly.
Against this backdrop, investors will be looking for any signs of concern about the krone, the worst performing G10 currency so far this year.
In Sweden, data on Wednesday will show whether core inflation in northern Europe’s largest economy continued to slow in July. That will provide a key clue to policymakers who are widely expected to press ahead with monetary easing this month after previously signaling up to three interest rate cuts in the second half of the year.
Inflation figures for Denmark and the Czech Republic are also due on Monday, while second-quarter GDP figures for Poland are due on Wednesday and Switzerland on Thursday.
The eurozone is set for a relatively quiet week. Key data due on Tuesday includes German ZEW investor sentiment, along with eurozone industrial production and Dutch GDP on Wednesday. European Central Bank officials are largely on holiday, and most southern European countries will be off on Thursday.
Heading south, Zambia is set to raise interest rates for the seventh consecutive time on Wednesday to curb double-digit inflation and support the kwacha.
On the same day, Namibia is set to keep its benchmark interest rate at 7.75%, in line with South Africa’s steadfast stance last month. The Namibian dollar is pegged to the rand, meaning monetary policy is often guided by the actions of the South African Reserve Bank.
Nigerian data released on Thursday is likely to show inflation falling for the first time in 19 months, helped by favourable year-on-year comparisons and measures to reduce food costs, including a 180-day duty-free import period for wheat and maize.
Inflation in Israel is also forecast to accelerate to 3.1% in July, as the Gaza war weighs on the economy and government spending rises. This would exceed the target range of 1% to 3% for the first time since November.
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Argentina is due to release inflation data in July, and economists polled by the central bank expect monthly inflation to slow to 3.9% from 25.5% in December. Annual inflation could slow for a third straight month, to about 263%.
Also from Argentina, the Ministry of Economy will announce its budget balance for July, which is currently experiencing a series of surpluses for the sixth consecutive month.
The central banks of Brazil, Colombia and Chile publish surveys of economists’ expectations next week. Chile also publishes a separate poll of traders, who correctly predicted that the Chilean central bank will stop operating on July 31.
Uruguay’s new central bank chief, Washington Ribeiro, and his colleagues may keep the key interest rate at 8.5% after inflation edged up slightly in July to 5.45%. Inflation has been within the bank’s target range of 3% to 6% for the past 14 months.
Brazil, Peru and Colombia are due to report GDP data for June, while Colombia will also release output figures for April and June.
All three economies expanded faster than expected in April and May, leading to a positive growth spread throughout the entire second quarter.
Since the recession in mid-2023, the Colombian economy has recorded quarterly growth of 1% and 1.1%. Year-on-year forecasts range from 2.8% to 3.3%.
–With assistance from Irina Angel, Robert Jameson, Brian Fowler, Otto Omelas, Laura DeHillon Kane, Monique Vanek, Paul Wallace, and Niklas Rolander.
(Updates with Bowman in paragraph 10)
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